Mexico’s Manufacturing Revolution

March 4, 2014

March 4th, 2014 — China’s siren song of low costs has been luring manufacturing companies from the United States and elsewhere for over a decade, enticing them with the promise of a large and inexpensive labor pool.

Recently, however, United States manufacturers have been leaving China almost as quickly as they came. Some have moved operations back to the United States but many others are heading to Mexico. Thanks in part to an increase in skilled labor and improved infrastructure, manufacturing in Mexico is on the rise and the country is poised to become a global manufacturing leader.

Once the Promised Land for manufacturers looking to reduce costs, China is now struggling with significant cost increases. The cost of labor has been the largest of these increases and is still on the rise. While wages in Mexico have remained stable, those in China have risen sharply, with some parts of the country seeing an average year-over-year wage increase of 22 percent.  This has allowed Chinese labor costs to catch up to Mexico’s previously higher rates, and the two countries now offer similar manufacturing wages. In fact, wages in China have already surpassed Mexico in certain industries.

Other cost increases are also negatively impacting China and driving increased manufacturing in Mexico. Rising fuel costs are making it more expensive to transport goods, particularly when they must travel as far as the United States. Fuel costs are volatile as well, making it difficult to predict and control them when moving goods long distances. In 2013, North American Production Sharing, Inc. reported that the average cost of shipping a full container from China to the United States was approximately $5,100. The same container could be shipped from Mexico for about $2,900 due to less expensive transport options. Trains and trucks simply cost less to operate than planes and ships.

Manufacturing in Mexico saves time, as well as money, by reducing the time it takes goods to find their way into the United States and Canada. Goods can be delivered virtually anywhere in the United States within one to three days, while it takes those from China up to 3 months to arrive. Trade agreements are also helping Mexico move goods more quickly — and with less government red tape and fewer tariffs. According to the Congressional Research Committee, Mexico was party to 12 free trade agreements encompassing 44 countries in July of 2012.

People, as well as goods, are moved much more easily and quickly between the United States and Mexico, as well. When quality control or other issues require a visit from corporate headquarters, it is faster and cheaper to send staff members to Mexico than China. Quality problems are also easier to control in Mexico where counterfeiting is not considered the problem it has become in the Chinese market. There are fewer time zones to contend with between the United States and Mexico, as well, making it easier for manufacturers, distributors and headquarters to communicate with each other in real time.